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A-Level Economics · AD shift left (recession) diagram question

Investment collapses and AD shifts left from AD1 to AD2. Which distance is the FALL in real output?

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The answer

The distance G H. Y₁ down to Y₂ — real output falls from 5 to 3. That gap is the negative output gap the recession opens up. Read the fall off the OUTPUT axis between the two equilibria: H (Y₁ = 5) back to G (Y₂ = 3). The AD curve shifted left by 4, but output only falls by 2 — because the price level falls too and the economy slides back down AS. Confusing the shift with the fall in output is the standard error here.

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